Sirius XM Could Be Acquired

Wednesday

Liberty Media has a 40% stake in Sirius XM. Analysts believe it could raise the stake to 80%, and a merger is inevitable.

NEW YORK (TheStreet) -- Sirius(:SIRI) has been a battleground stock for seemingly forever, but as the company has improved its cash position, the rumblings that it could be acquired grow ever louder.

John Malone and Liberty Media(:LMCA) could be the ones to do it, according to a Citigroup analyst.

Analyst Jason Bazinet believes that Liberty could potentially acquire an 80% stake in Sirius, up from its current 40% stake. Bazinet believes this could create an additional $930 million in value by tapping into Sirius' significant tax assets. Bazinet rates Sirius buy with a $2.50 price target and Liberty Media neutral with a $94 price target.

This comes as several major hedge funds reduced their stakes in Sirius during the fourth quarter. Funds like SAC Capital Advisors, JAT Capital, and George Soros reduced or cut stakes during the quarter.

Sirius is now free-cash-flow positive and just recently raised monthly subscription prices for the first time in the company's history.

Shares of Sirius are up 24.2% year- to date, while shares of Liberty Media are up 15.4% year to date.

Bazinet argues that an 80% ownership stake by Liberty could cause free cash flow to "ramp significantly over the next four years," as well as "pave the way for Sirius to use its cash flow to retire remaining 20% of public float over next four years."

The quixotic John Malone-chaired cable and media conglomerate has stakes not only in Sirius, but Barnes & Noble(:BKS) and Live Nation(:LYV) as well, and has never been shy about tax-advantaged acquisitions. Sirius is certainly that, as it has net operating losses (NOL) and will not have to pay taxes for the foreseeable future.

Bazinet writes in his research note that Liberty Media has access to $6.5 billion in liquidity from three sources: "1) $3.85 billion from Liberty Media cash on hand, existing Sirius debt, existing lines of credit and FCF in '12; 2) $1.40 billion from Sirius cash on hand and FCF in '12; and 3) $1.25 billion in cash from Liberty Ventures." Purchasing an 80% stake of Sirius at $2.50 per share would cost $6.36 billion, so Liberty Media has the means to do it should it want to.

Bazinet is not the only analyst who believes a merger is likely. In a Feb. 9 report, Pivotal Research Group analyst Jeffrey Wlodarczak increased his price target for Liberty Media to $107 a share, driven by an increase in the value of Sirius XM Radio. "We continue to believe Liberty inevitably increases its stake in SIRI above 50% prior to an inevitable merger," wrote Wlodarczak, who noted that by clawing back Starz, the company now has up to $9 billion that it can use for share buybacks or acquisitions of investments like Sirius and LiveNation.

The signs for a potential Sirius merger are there, with more than one analyst forecasting an inevitable merger. Whether it happens or not is in Malone's hands, but the groundwork has been laid.

For more on M&A, see 5 deal ready stocks loved by hedge funds's portfolio.

-- Written by Chris Ciaccia and Antoine Gara in New York

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